A beneficial owner is defined as the natural person that can be found at the end of an ownership chain. Often there is just a single link between a beneficial owner and a company, but sometimes it can include long and complex ownership chains of multiple legal entities.
A beneficial owner is a person that ultimately has the right to some share of a legal entity’s income or assets, or the ability to control its activities.
Beneficial ownership transparency (BOT) reveals how companies and other legal entities or arrangements, such as trusts, are owned and controlled by their beneficial owners.
Owning or controlling a company comes with rights, such as limiting liability, as well as responsibilities to customers, shareholders, governments, regulators and other businesses. Knowing the beneficial owner of a company helps identify where decisions are made and who should be held accountable.
Beneficial ownership differs from legal ownership. Companies can own or control other companies and are known as legal persons. Historically, transparency in company ownership has focused on legal ownership, or the level of ownership immediately above a company.
Companies that only exist on paper, and that do not have any real operations or employees, are sometimes referred to as shell companies. Creating a shell company in a jurisdiction without company ownership disclosure requirements and transferring stolen assets to this company makes it difficult to follow the money between the stolen assets and their anonymous owners.
Shell companies in these secrecy jurisdictions facilitate organised crime, corruption, and tax evasion by making their owners anonymous. Setting up shell companies in multiple jurisdictions can make investigations even more complicated and challenging, as it allows people to pick and choose laws from different countries to suit their purposes. A study by the World Bank found that 70% of grand corruption cases studied involved the use of anonymously owned companies.
Making more of this information available to those who can use it effectively – BOT – helps solve issues around corporate accountability and illicit financial flows. BOT is gaining momentum globally, with over 100 countries committed to implement reforms. The G7, the G20, the Financial Action Task Force (FATF), the World Bank, the International Monetary Fund (IMF), and the UN have also come out in support of BOT. Companies that both disclose and use beneficial ownership information also support BOT.
In practice, this means more jurisdictions are requiring companies to disclose information on their actual (or, beneficial) owners in order to make this information available to law enforcement or the general public. However, in some countries, accessing information on the real owners of companies can still be challenging. This can be because they have not yet implemented reforms, or because they have implemented these poorly.
“In mandating the establishment of a public registry of these actual beneficiaries, the Biden administration should press other countries to do the same, closing loopholes in Europe and beyond, so the true owners can be subjected to legal oversight. These registries are indispensable in ensuring that illegal money flows are detected and investigated.” Samantha Power, USAID Administrator